Option Investor
Educational Article

The Horizontal Spread

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Options are unique because they can be used for a variety of purposes in range of market conditions. They provide both utility and versatility, allowing each individual participant the opportunity to construct positions that fit their personal criteria for risk and reward in any situation. A trader can buy or sell calls and puts to hedge existing positions, generate income on portfolio holdings, or speculate on directional trends. They can also employ various combinations of options or "spreads" to achieve acceptable gains with reduced risk.

Last week, we discussed the advantages of using a vertical spread with trending issues. Today we will review the benefits of a horizontal spread; often called a calendar spread, and learn how this strategy can profit from the passage of time in markets with a lateral or range-bound character.
 

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